tv Nightly Business Report PBS January 27, 2012 1:00am-1:30am PST
>> tom: big cat roars. caterpillar's earnings surge 60% and c.e.o. doug oberhelman sees big growth in the year ahead >> our growth in 2012 is going to come from just about everywhere in the world >> reporter: i'm diane eastabrook in chicago. manufacturers are hiring again. the problem is they can't find anybody to fill those positions. >> susie: then, a look at headwinds in the airline industry/ from fuel to labor to the struggling economy, the new math on what it takes to fill seats. it's "nightly business report" for thursday, january 26. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
a bullish forecast about the global economy from caterpillar today. the world's leader in bulldozers and excavators expects sales to grow as much as 20% this year. the company also predicted the global economy avoids a recession. tom, those comments came as caterpillar reported record quarterly earnings, posting a gain of 60%. >> tom: susie, that performance is an important economic indicator because caterpillar's business comes from infrastructure and agriculture spending across the globe. caterpillar earned $2.32 a share, surpassing estimates by almost 60 cents. these results cap a year in
which caterpillar saw sales grow at their fastest pace since 1947. investors were encouraged. caterpillar stock rose almost 2%, and it was the best performer in the dow. >> susie: a short while ago, i talked with caterpillar c.e.o. douglas oberhelman and asked him what areas will fuel growth this year. >> just about everywhere in the world. at the midpoint as $70 billion we'll be up about 16, 17% on sales which is pretty good, our profit up 25. but if you really look at it u.s. is a strong contributor to that. and that's very interesting because i think underlying economy here in the united states is stronger than most people appreciate. it's not great. it needs a lot of help. we're not out of the-- off the life-support yet but fundamentally things are better than people appreciate, i think. >> susie: doug, talk us through why you are so bullish. because yesterday the chairman of the federal reserve said that he is
expecting weak economic growth in the u.s. we also heard this week from the imf also calling for weak global economy. and china where you do a lot of your business is also seeing signs of a slowing economy. so it seems like are you seeing things differently. >> well, we see the economies a little more optimisticly i think then many because of the fundamental nature of what we do around infrastructure. secondly our growth is really growing faster than the industry's reserves. so we're doing thins to help our business over and above what's happening in the markets we are serving. we're very happy about that. but take the u.s. interest rates are very low. we're in the 6, 7th year of a housing, deep housing recession. we're calling for about 750,000 housing starts this year. it will probably be somewhere around that. that's still very low. there's still lots of upside to come down the road. if you compare the economy today back to where we were in 2008, it's a lot stronger fundamentally. the banks are stronger.
we just have got better news across the board that i think will help pull this thing forward. >> susie: well, you also said in your report today that you see construction finally recovering in 2012. what are you hearing from your customers that you can make a statement like that? >> almost everywhere i go there's something that's happening. around chicago area here in the state of illinois, the contractors up there are operating at a very low level but their jobs are going on. there's dirt being moved. you hear that all around the country. and little by little that momentum is gaining. remember, we really suffered in '09. our customers really, really shrunk their business. saw it disappear in front of their eyes. so they're coming back from pretty low numbers and little by little building that back. and suddenly that's creating some demand for us and we like that, obviously. >> you're also pretty positive about europe. are you saying that europe can avoid a bad recession like so many other people have been predicting?
>> we can see a mild recession in europe that won't impact the rest of the world all that greatly. and i think that's what we are set up to see. because we do see some fairly good activity around some of the countries in western europe. outside of western europe, africa, middle east, very good numbers and a lot of growth. so there's not all bad news in western europe. some bad news for sure. >> susie: you reported today that caterpillar's performance was its best year-over-year since 1947. and you also reported record order backlogs it sounds like you are going to need a lot more hands on deck to do all that business. are you going to be adding more jobs. >> as we grow 17% top line next area an hopefully beyond, we will need more help, more workers, a great kind of growing company. and hopefully a growing economy. >> susie: but in terms of your stock doing well, what is a key thing that needs to happen in whatever sector for to you keep up this momentum? >> well, i think we have just got to keep doing what we are doing.
drive for cash flow, profit ability, work on the fundamentals of our business, serve our customers better than anybody else and shareholders tend to like that and will attract them as a result. >> susie: you can watch my full interview with caterpillar c.e.o. doug olberhelman on our web site g to feature videos on nbr.com. >> tom: weaker-than-expected housing data puts an end to wall street's slow grind higher over the past several sessions. new home sales fell 2.2% in december. economists had expected a 2% rise. adding to the disappointment, new claims for jobless benefits rose 21,000 in the past week. add all that up, and the dow fell 22 points, the nasdaq lost 13 and the s&p 500 off 7.5 points. >> reporter: i'm diane eastabrook in chicago. still ahead, manufacturers are hanging out help wanted signs. they're hoping someone answers.
>> tom: airline shares got a nice lift for the second day in a row after united-continental and jet blue became the latest carriers posting profits. united-continental earned 30 cents a share in the fourth quarter, more than double analyst expectations. jet blue profits came in at eight cents a share, also topping wall street expectations. but, as suzanne pratt reports tonight, the airline industry still is likely to experience turbulence in the months ahead. >> reporter: it looks like the skies are getting friendlier for u.s. airlines. after a decade-long downturn, that resulted in at least a few bankruptcies, the airline industry is making money again. >> airlines have been working for the last two years to conform to the new fuel reality of $1,900 fuel. this is the first quarter i think we really feel they have the formula down. >> reporter: that formula includes higher airfares and fewer flights for passengers. both, however, have helped increase revenue for many airlines, even though the u.s.
economy remains somewhat weak. analysts say the united- continental merger, as well as the delta-northwest marriage, have also paid off for the carriers in terms of cost- cutting. and, as a result, more consolidation is expected, particularly for american airlines parent-- a.m.r.-- in the midst of bankruptcy reorganization. >> all eyes now on a.m.r., and we're just hearing more reports about u.s. airways' interest in a.m.r., and i think we're going to see some play there. >> reporter: to be sure, the industry is still extremely fragile. stubbornly high fuel costs continue, so do concerns about europe's economy. on top of that, only muted growth is expected this year for the u.s. economy. still, at least one analyst is keen on the sector. >> airline stocks have been very weak since the summer because of the uncertainty in the economy and fuel prices. we've had a rally in the past couple of days simply because
fourth-quarter results have been so good. we could still have a small pullback in the wintertime, but it's not too early to be buying these stocks. >> reporter: the headwinds will no doubt continue for the u.s. airline industry this year, but, it sounds like they'll finally be competing with some tailwinds, too. suzanne pratt, "nightly business report," la guardia airport, queens, new york. >> susie: ben baldanza is the c.e.o. at discount airline spirit airlines. welcome the program. >> thank you very much, tom. >> tom: unlike the legacy carriers cutting seat, cutting capacity you added 10% capacity in the last quarter despite rising jet fuel prices k that continue? >> we think it can and the amazing secret is low fares, so with. >> tom: so with that in mind how full are your plane. >> they average 87% full. when the fares are low people come out to fly. >> paul: what about-- . >> tom: what about the margins. >> the martins tend to be good, we tend to run the highest ebitda-- ebitda
margin in the industry in the last four years so while we'rthe lowest price airline we're also one of the most profitable airlines in the united states. >> tom: what is the median fare you have been able to realize last year. >> our average our break even through third quarter was about $63. our average was about $80. >> tom: and how much of that fuel cost dow have to hedge away to get that. >> we think about fuel hedging now and really just the short term. if i sell you a ticket today and fuel price jumps tomorrow then i have that difference to cover. so our booking curve is about 45 days or so. so we think about hedging the next 60 to 90 days and generally we try to be about 50% hedged. >> tom: in the third quarter, 35 cents ef of every dollar came from nonticket revenues, all the fees that come along when you fly a spirit route is that the mix would you like b a third coming from nontickets. >> we would like to get it layer than that because as we have added fees, at the same time we brought down our average fare as well and we like that because we
think it gives consumers its option to pay for what they use and save on what they don't. >> tom: more flexibility to perhaps raise those fees or add different types of fees than the fare. >> that's right. when we can make more of it an option to the consumer and make it a lower price to get on the plane we think that drives more traffic. >> tom: let's talk about the stock with the ticker symbol save. it has one of the vanity ticker symbols. it's been a nice move, public for $12 a share noon last year. you have been able to beat wall street estimates the past two quarters by a time a share, can that outperformance continue. >> they are starting to understand our model. and i think some of that overperformance was the fact that they didn't really know how spirit worked so well. we operate differently than many other airlines. we have put out consensus for the fourth quarter suggests that we should hit somewhere around a 21%ier over year unit revenue increase. and based on that kind of guidance i think we will probably be pretty close. >> tom: finally beginning this week as you know the department of transportation put new rules in place for advertised airfares that have to include all the
government security fees and taxes. you have been running a marketing campaign that has included these kinds of e-mails characterizing the requirement as quote hiding government taxes. claiming a conspiracy, basically, of a hid answer genda to quietly increase tax, do you have evidence of that. >> we just think that the first step in-- why would you want to hide a tax unless you want to come back and raise it later. we are a fan of huge transparency at spirit and our view is it should be clear what the customer is paying the airline and what they are paying the government in taxes. >> tom: you can still itemize it when you get the fare. >> you can but we always have itemized that for customers and no customer ever bought a spirit-- ticket on spirit and didn't know the taxes versus the fare. what this new law requires, however s that we put the fare and the taxes together so they look like one thing. that is actually kind of sneaky we think. and because you don't really know how much are you paying the airline and how much are you paying the government. we think consumer was want to know that. >> tom: we will leave it there. best of luck in the marketing campaign as well.
>> thank you. >> tom: ben baldanza, the c.e.o. at spirit airlines. >> susie: the defense department announces sweeping >> susie: the defense department announced sweeping cuts today that will affect communities and companies around the country. as part of the effort to slash almost half a trillion dollars in military spending over the next ten years, defense secretary leon panetta is calling for another round of base closures. but as it reduces spending, the defense department also wants to keep key defense companies in business. darren gersh reports. >> reporter: this is what it looked like the last time the defense department slashed its budget. after the cold war ended, the pentagon needed fewer weapons. defense contractors closed, leaving behind empty parking lots and an exodus of engineering talent. defense secretary leon panetta promised this round of cuts will be different. >> maintaining the vitality of the industrial base and avoiding imposing unacceptable cost or risk on our critical suppliers will guide many of the decisions
that we have made. >> reporter: in the late '80s, the pentagon relied on more than 30 big defense contractors. now the number is down to a handful, leaving little room for consolidation. defense analyst todd harrision says the pentagon must figure out which companies are critical to national defense. >> so the fear in the pentagon is that, if we lose some critical skills in our industrial base or some critical capacity to manufacture things, that we might not be able to regain it when we really need it in the future. >> reporter: and the pentagon has clearly defined the defense future it wants to fund. unmanned drones, submarines, new stealth bombers and fighters are top priorities even in a time of tight budgets. >> the military will be smaller and leaner, but it will be agile, flexible, rapidly deployable and technologically advanced. >> reporter: while the navy and air force will get new systems,
the army will get smaller, losing 72,000 soldiers, and that will reduce demand for new ground vehicles. >> right now, we are planning to stop upgrades to the m1 abrams tank, and so that part of the industrial base we may lose temporarily in the coming years. i think the department is willing to take that risk, because they are not placing as much emphasis on ground systems in the future. >> reporter: as arms sales in the u.s. slow, defense contractors are hoping to replace lost sales at home with more business overseas, particularly in asia, where u.s. allies are increasingly concerned about china's military buildup. darren gersh, "nightly business report," washington. >> tom: early gains for stocks evaporated as the day wore on, with the weaker new home sales data overshadowing some strong blue chip earnings. the dow industrials saw a solid pop in the first half hour of
trading, thanks to the strong earnings from caterpillar and 3m. but the gains didn't stick and the dow finished down a fraction, but the high during the session for the dow was the index's highest level since may 2008. two global industrial giants led the dow gainers. there's caterpillar's 2% rally, and 3m added more than 1%. this is 3m's highest price since july. meantime, these results from at&t dragged down the dow. at&t's earnings were a penny shy of estimates, and that was before recording a $4 billion charge for its failed buyout of t-mobile u.s.a. similar to verizon, at&t's wireless business saw margins pinched due to its iphone and smartphone business. the carriers subsidize the cost of the phones, in hopes of making it up with subscriber data plans. at&t was the worst stock among the dow industrials, falling 2.5% on strong volume, down to a one-month low. at&t's news contributed to the
weakest sector today, telecom services, falling almost 2%. the energy and financial sectors lost about 1% each. the market may not get a jolt from starbucks. after the closing bell tonight, the company warned about higher commodity costs in the months ahead. that came after starbucks reported earnings a penny higher than anticipated. starbucks in asia saw a 20% jump in same-store sales. u.s. sales showed solid growth too. the average receipt by u.s. customers was up 2%. shares hitting a new high, but they fell 2%, below $48 dollars per share, in after hours action. starbucks has been successfully raising prices and, despite forecasting higher commodity costs, the company still expects to improve its profit margins. green mountain coffee roasters, dropped more than 3%. an analyst report contends wal- mart will start selling a product competing against green mountain's popular single-cup brewers. yesterday, j.c. penney aimed to begin its makeover in the eyes of shoppers. today, the retailer went before stock analysts and the initial results are positive for shareholders.
the stock shot up almost 19%. this is its highest close since september 2008. the company says its overhaul of more than 1,000 stores and its strategy to stop frequent price discounting will not hurt its profits this year. a bullish sign. the january jobs report comes out a week from tomorrow, but two recruitment stocks have run into selling. monster worldwide lost a fifth of its value. robert half international shares dropped another 4% after the close tonight. earnings for both came in shy of estimates. in commodities, gold continues over $1,700 an ounce. copper is at a four-month high, and natural gas continues to see volatility, falling 4%. and that's tonight's "market focus."
>> susie: president obama is on the road this week making a pitch for boosting manufacturing in the u.s. his message is the same one he shared during tuesday's state of the union-- tax breaks for companies that create jobs here in america. in the past few years, the manufacturing sector has created roughly 300,000 jobs. many factories large and small have help wanted signs out for even more workers. but, as diane eastabrook reports, tax breaks aren't necessarily what manufacturers need. they need workers with 21st- century skills. >> reporter: meyer tool and manufacturing in oak lawn, illinois, isn't an old-style factory. the company builds high-tech
equipment for some of the nation's most renowned research laboratories. >> what we have here is three distribution boxes or valve boxes going to argonne national laboratories. >> reporter: but operations vice president edward bonnema and president eileen cunningham now face perhaps the biggest challenge in meyer's 45-year history-- finding machinists and technicians who are skilled in math and reading blueprints. >> we've had openings for six or more months in some areas. we've always had the ability to bring in and do more work, but we've been limited by workers and our resources. >> reporter: manufacturing has been a bright spot in the u.s., growing three times as fast as the overall economy in the past couple of years. but, ironically, a sector which shed nearly 2.5 million jobs in the recession can't seem to find enough workers to fill an estimated 600,000 openings at factories. chicago federal reserve bank senior economist william strauss knows the primary reason. >> in part, it's a mismatch
between those who lost their jobs not having the kind of skills that are needed in more of a 21st century manufacturing environment. >> reporter: freedman seating company in chicago reflects that disconnect. the 145-year-old company which makes bus and truck seats has no trouble finding lower skilled employees to do assembly work, but company president craig freedman says he is having trouble finding machinists skilled at operating metal- cutting lasers. >> they will program based on a blueprint... this configuration, they will enter it into a computer and then press the button and it goes. >> reporter: the national association of manufactures says larger companies are developing programs in-house or at community colleges to train new hires for more complex factory jobs. but emily derocco, president of the manufacturing institute, a think tank, says many firms can't afford do that. >> the vast majority of
manufacturers are small and midsize companies. they don't have the capacity to internalize more structural costs in the operation and remain competitive in the global market. >> reporter: interest in manufacturing as a career is another problem. tomorrow, i'll tell you how one chicago high school is trying to change that. diane eastabrook, "nightly business report," chicago. >> tom: here's what we're watching for tomorrow: we'll get the first look at fourth-quarter g.d.p., the final reading on january consumer sentiment, and earnings from altria, chevron, ford motor, honeywell and procter & gamble. also tomorrow, our friday "market monitor" guest goes looking for stocks that have missed this latest rally. he's alan lancz, editor of the "lancz letter." >> susie: uncle sam is still holding the bag on some big bailout loans that it granted at the height of the financial crisis. a government watchdog reports
that as of december 31st, the u.s. government is still waiting to be paid back more than $130 billion. american international group borrowed the most, and still owes the most: $50 billion. bailed-out automaker general motors is still on the hook for $25 billion. ally financial, regions financial and zions bancorp round out the top five debtors. >> a federal judge ordered that the they won't have to pay pollution charges on the offshore oil spill saying transocean is covered by its contract with bp but transocean will still be liable for punitive damages or civil penalties the government may bring over that 2010 spill. transocean share its jumped about 8% in after-hours trading. >> susie: hostess brands wants
>> susie: when it comes to teaching your kids about money, it's all about creativity. alisa weinstein explains in tonight's "kids and cash." she's author of "earn it, learn it." >> who knew money had a creative side? oh, but it does. money can bring out the creativity in kids as much as a new watercolor paint set. and this is huge: thinking creatively is a life skill we want our kids to have in their back pockets for personal and professional growth. so how can cold, hard cash help? use money as a tool for creative
thinking. give your kid a few bills-- like a ten, two fives and three ones-- and ask her to give you $12 in two different ways. or give her markers and paper and have her make up her own family currency-- money she can use to buy an extra 15 minutes up at bedtime. or, plan a menu and have your child figure out how much it would cost to feed ten people. assume five more friends want to come, and have her do it again for 15. then scour the newspaper, creatively using coupons to save on your big meal. activities like these help children better understand how cash works, and because they're fun, they're more likely to pay attention. even better, your kids practicing being creative, resourceful and fiscally smart-- all at the same time. i'm alisa weinstein. >> susie: that's "nightly business report" for thursday, january 26. i'm susie gharib. good night everyone, and good night to you too, tom. good night susie. >> tom: i'm tom hudson